Joe Dermody reports on leading Cork financial advisors and solicitors whose business clients are looking to open new offices in the UK to overcome post-Brexit challenges.
Small businesses exporting to the UK should prepare to face WTO level tariffs from December 2018 on; anything short of that degree of punishment will be a bonus, says one leading Irish business adviser.
One of the country’s leading currency and corporate finance specialists, John Finn of Treasury Solutions also produces a monthly market review that is closely followed by businesses. His website features testimonials of his FX clients with €350m and €250m turnovers.
At a Brexit business seminar hosted yesterday by chartered accountants Paul O’Donovan & Associates in Clayton Hotel, Cork, Mr Finn predicted a degree of consolidation over the next 18 months as some Irish-based SMEs tighten their belts to help fund moving at least some of their operations to the UK.
More small exporters will need to take on experienced non-executive directors, more will be hedging their currency dealings, many will join forces in sectoral clusters to share resources on logistics, manufacturing and storage, etc. And all SMEs would benefit from a Government-led repository where they can get answers to the same series of questions facing every exporter.
“The starting point for any exporter into the UK should be to look at the WTO [World Trade Organisation] tariffs for their sector,” John Finn told a capacity gathering of business leaders. “For instance, the WTO lists 2,069 agri-food products; within that there are 152 lines of dairy products with an average 36.1% tariff.
“But that average tariff ranges from 1% to over 600%. Your first question should be ‘Where do I fall in that range?’ What are the different tariffs if my product is raw or processed? And can I tweak my category?
“We should have a repository to help people with this. The Government has a lot of work to do, work that needs doing quickly. December 2018 is the drop dead date.”
Mr Finn urges SMEs not to put planning on hold, wasting time watching the EU-UK negotiations between now and the UK’s formal exit. Most Irish SMEs will continue to do trade in the UK, where many of them are already either launching new offices or expanding existing operations.
Many Irish and EU businesses are frozen, incapable of making decisions, trapped in the headlights of Brexit. Some companies are finding access to lending deeply problematic as banks join the decision-making logjam.
In a new EU-wide survey by IT company Oracle, 46% of finance leaders say forward planning has become more complex and uncertain; 41% of CFOs admit that they did not expect Brexit and did not plan for it; 46% plan to continue investing but more cautiously; 32% are restricting their spending to bare essentials.
Meanwhile, Bord Bia has calculated that sterling’s fall after then Britain’s Brexit vote cost Irish food and drink exporters €570m last year alone. Overall Irish food and drink exports grew by 2% last year to €11.15bn, but exports to the UK fell by 8%.
John Finn translates that €570m into 17,000 jobs, based on a €33,000 average industrial wage. He gave a Brexit talk in January 2016 on how SMEs should plan for a new currency environment.
“Nobody was paying attention,” said Mr Finn. “I feel a bit like a broken record saying the same thing two years in a row, but what else am I to do? People’s approach to Brexit is like they’re focusing on the windows when the building has no foundations.
“Currency will continue to be the most visible aspect of how things are changing. It will ebb and flow. I was at a talk recently where someone said only 25% of SMEs have yet to hedge their currency transactions. I don’t believe that; I’m only now seeing a huge pickup on the currency side of my business, mostly from people who could have saved themselves a lot of money if they listened to me last year.”
Mr Finn also notes that UK-Irish trade is not going to shut down come December 2018. Between now and that date, some 27 EU member states will have to be consulted on the breakup. That will require a six-month lead time; even the 27 translations of consultation documents will take a month or so.
It’s hard to exaggerate the damage SMEs can do themselves by hovering in stasis in the interim. Mr Finn advises that SMEs start with a worst case scenario of WTO level tariffs on their products, and plan accordingly.
“You’ll need a five-year plan, and within that a two-year plan, a three-year plan, etc,” he said. “Where should I relocate to in the UK? Would I get a half decent deal in Northern Ireland? If you have an artisan cheese business in West Cork, can you share the costs of logistics and manufacturing services with someone exporting fish, or chocolates to the UK?
“I think we’ll see Irish companies acquiring more and more in the UK,”he added. “We’ll see more mergers in the Irish market as people seek to scale up in the UK. That kind of activity needs to be facilitated with finance, but many business owners are still dealing with a lot of complicated situations with personal debt, and we’re also still seeing loans being sold on.
“I think that all of that has held back progress in the indigenous sector, and I’m really not convinced that many businesses are as ready for Brexit as they need to be. Access to borrowing is really inhibiting SMEs looking to plan ahead.
“Anything that the Government can do to help will be welcome. If the same problems are facing 3,000 to 5,000 Irish companies, surely we there should be a repository they can access to get answers to their questions of what to do.
“Those most at risk will be companies based around rural communities. When you look at Bord Bia’s for food and drink companies losing millions on currency alone, rural Ireland has had a real bum deal in this.
“The real irony is rural community life will be a big selling point for Ireland. With so many places in the world now unsafe, places like Cork are looking more and more attractive. But that also needs a clear strategy.”
Other panel members at the third Paul O’Donovan & Associates seminar were: Feargal Brennan, partner, Byrne Wallace Solicitors; Ciaran Desmond, solicitor; Brendan Lenihan, MD of Navigo Consulting; Páraic Mac Donnchadha, MD, Grid International (Ireland); and Conor McKeown, head of corporate finance, Cantor Fitzgerald.
Feargal Brennan said he’s seeing a rise in merger and acquisition activity, and says there will be more as people get past the conservative overhang from a decade of recession.
He recalled some SMEs whom he had advised to sell in 2006, who went on to regret holding out for a better deal.
Ciaran Desmond also brought an interesting legal perspective on planning for succession.
Like John Finn and Feargal Brennan, he also predicts a rise in M&A activity. In managing the transfer of a sample €2m family-owned SME, he outlined how to ensure the tax take stays in the €7.5-20k range rather than €350k.
Meanwhile, Measuring customer satisfaction is one of the biggest lessons SMEs can learn from larger firms, says Brendan Linehan, managing director of Navigo Consulting Ltd.
Mr Lenihan told Munster business leaders at the Brexit seminar in Cork’s Clayton Hotel, that larger firms devote huge energy to capturing, measuring and acting upon their ‘net promoter score’ — the ratio of 9-10 scores vs 1-6 scores from customers.
“The score is based on the oldest market research question that you can ask, namely ‘How likely are you to recommend us to a friend?’ It’s a simple and cost-effective question to ask,” Mr Lenihan said. “All the larger firms ask their customers this question. When I work with SMEs, in most cases they’ve no real evidence of what their customers think of them.”
This was one aspect of a talk in which Mr Lehinan offered SMEs advice on succession planning, new technologies and the need to bring in non-executive directors with new ideas.
“SMEs often only have a vague understanding their customers,” he said. “They need to think like the larger firms, or they will continue to be over-run by them.”
Mr Lenihan also used the image of the day. In urging SME owners to take on outside experts and non-exec directors, he compared them to player-managers John Giles, Graham Souness and Kenny Dalglish. He said they all enjoyed past successes, just not in the modern Premier League.
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